Following the onset of COVID-19, more people are starting to understand the importance of financial planning. Financial planning enables you to cope with unexpected circumstances such as losing a job or the sudden illness of a family member. At the very least, it allows you to cope better when you lose your source of income or incur a sudden huge expense.
With the stock market more volatile than ever, some people may feel out of their depth when it comes to investing. We understand you. There are, however, some tried and tested tips on how you can go about financial planning during uncertain times. Let’s find out more.
THE IMPORTANCE OF FINANCIAL PLANNING
During normal circumstances, some people may have the habit of living paycheque to paycheque, thinking that there will always be money coming in at the end of the month. However, financial planning is about much more than covering daily expenses. Below are some reasons why financial planning is so important:
- Helps you meet your short-term and long-term goals, even those that are not directly financial. For instance, going on holiday.
- Ensures you have enough to tide you through emergencies and uncertain times.
- Gives you peace of mind.
- Allows you to enjoy a better standard of living.
- Protects you and your family from financial devastation in the event of an unexpected occurrence.
Here are some ways on how you can start financial planning during uncertain times.
SAVE A PORTION OF YOUR PAY EACH MONTH
It may seem impossible to put aside a portion of your pay every month when you are dealing with bills and debts, but it’s doable. An approach most people follow is the 50-30-20 rule. Allocate 50% of your income to needs: this includes mortgage payments, utility bills, groceries, insurance premiums and more. 30% goes towards your wants, such as shopping, eating out and your hobbies. The remaining 20% goes into savings. Individual circumstances may mean that this rule doesn’t work for you. If that’s the case, settle on a fixed percentage of your pay to save every month and stick to it.
OPEN A SAVINGS ACCOUNT
While some people start out with good intentions, over time, their resolve can weaken, and they end up spending part of their savings on unnecessary indulgences. To avoid this from happening, simply open up a separate savings account that isn’t connected to a debit or credit card. If you know you may get the urge to transfer money from this account to your spending account, open one at a different bank and refrain from downloading the online banking app.
START A HABIT OF TRACKING YOUR EXPENSES
You may be wondering where the bulk of your money has gone in a certain month although you don’t remember spending much. To fully get on top of your finances, start a habit of tracking your expenditure. This comes with the additional benefit of being able to detect any fraudulent transactions on your debit or credit card immediately. At the end of the month, you may be surprised to find out how much you are actually spending on ‘wants’. If you are unsatisfied with your current expenditure, take the time to write down your financial goals and set a budget.
GET AN INSURANCE RISK ASSESSMENT
How insurance companies decide on the premiums to be paid by each client is through a risk assessment. For instance, if you are purchasing vehicle insurance, they will look at factors such as your age and gender, the age of your car, whether you have any past infractions and more. This is because car accidents do not happen at the same frequency for every driver, certain risk factors put some people more at risk than others. A risk assessment is an essential part of buying insurance look at it as a way of protecting yourself from that particular risk. If you do not have comprehensive insurance coverage, an unexpected circumstance can easily throw your entire financial planning off-kilter.
GET INSURANCE COVERAGE
If there’s one thing COVID-19 has taught us, it’s that unexpected circumstances can take us by the throat. That’s why insurance planning is so important. Depending on the policy you take out, critical illness, hospitalization, personal accidents as well as disability can be covered. These are the barel minimum and if you are the sole breadwinner in your family, a life insurance policy is essential to secure your family’s financial security in the unexpected event of your death.
While insurance premiums can seem like an additional cost every month, it will prove to be the worthiest investment you can ever make. Nobody knows when accidents or emergencies will happen but with insurance coverage, you are buying yourself the protection that can come in useful one day and has already proven to be so for millions of people.
This article is for informational purposes only and should not be relied upon as financial advice.